deregulating the transfer of agricultural technology: lessons from...

The World Bank Research Observer, vol. 17, no. 2 (Fall 2002), pp. 237–265© 2002 The International Bank for Reconstruction and Development / the world bank 237

Deregulating the Transfer of AgriculturalTechnology: Lessons from Bangladesh,

India, Turkey, and Zimbabwe

David Gisselquist • John Nash • Carl Pray

Many transition and developing economies have reduced direct public involvement in theproduction and trade of seed and other agricultural inputs. This trend creates opportunitiesfor farmers to realize improved access to inputs, including technology from internationalprivate research. Unfortunately, input regulations often derail these opportunities by block-ing private entry and the introduction of private technology. This study looks at the experi-ence in Bangladesh, India, Turkey, and Zimbabwe to see whether regulations make a differencein agriculture and input industries in developing economies. In all countries, companies andfarmers responded to regulatory reforms by introducing and adopting more new technologyand by expanding the production, trade, and use of inputs. The increased use of private tech-nology has brought higher yields and incomes, allowing farmers and consumers to reachhigher levels of welfare. These results challenge governments to open their regulatory sys-tems to allow market entry and the introduction of private technology through seeds andother inputs.

For many years, discussions about technical change in agriculture in developingeconomies have focused on public research and extension. However, a number ofstudies have shown that private input companies can also be important channels forthe introduction of technology in the agricultural sector in these countries. Pray andEcheverria (1988) find that maize yields in 50 countries responded to private researchand seed imports. Narrod and Pray (1995) show the relation between livestock pro-ductivity and the introduction of private technology. And Evenson and others (1999)present evidence for India that private research contributes to total factor productiv-ity growth in agriculture.

This article looks at regulatory barriers that restrain private technology transferand the changes that follow when governments reduce some of those barriers. Thestudy was motivated by findings of widespread regulatory barriers to private intro-

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The World Bank Research Observer, vol. 17, no. 2 (Fall 2002)238

duction of input-embodied technologies (Gisselquist 1994). The first section intro-duces the hypothesis that guides this study. The second section describes regulatoryreforms and impacts on input industries in Bangladesh, India, Turkey, and Zimbabwe.The third section looks at downstream impacts on agricultural production and incomes.The fourth section concludes with recommendations for governments, donors, and theConsultative Group on International Agricultural Research (cgiar) to improve farm-ers’ access to the world’s flow of new (often private) agricultural technology.

Hypothesis: Regulations Make a Difference

All countries regulate inputs, and regulatory designs and practices vary widely acrosscountries. However, to our knowledge, only two studies have dealt directly with thecosts and benefits of regulating technology transfer in agriculture. Both studies dealwith seeds: for wheat in Canada (Ulrich and others 1987) and for cotton in Califor-nia (Constantine and others 1994). These studies show large losses in the form offorgone gains when governments do not allow farmers to adopt new input-embodiedtechnologies. We have found no studies dealing with the costs and benefits of inputregulations in developing economies. In other words, the empirical basis for debatesabout how best to regulate inputs in developing economies is extremely weak.

To estimate the costs and benefits of closed versus open systems (that is, open tothe introduction of private technology) in developing areas, we looked for countriesthat had recently eased barriers to the introduction of private technology. We foundfive countries with significant shifts in input controls. Using data from four coun-tries—Bangladesh, India, Turkey, and Zimbabwe—we tested the following hypoth-esis: Regulatory reforms reducing obstacles to the introduction of new agriculturaltechnology stimulate technology transfer and have a significant net positive impacton productivity and incomes. (The fifth country, Chile, was cut from the study dueto funding constraints.)

Most industrial market economies allow private companies to introduce new tech-nology for most industries—including computers, computer programs, and electronicconsumer goods—without government preview and approval as long as there areno major problems with externalities or public health. These same general principlesguide agricultural input regulations. Organisation for Economic Co-operation andDevelopment (oecd) countries generally allow companies to introduce new technol-ogy for seeds, fertilizers and farm machinery. Although performance tests may be aformality in some countries, they are seldom obstacles. However, for classes of inputswith significant externalities or public health impacts—such as pesticides and live-stock medicines—most oecd governments balance data on performance against risksin deciding whether to allow a new technology.

David Gisselquist, John Nash, and Carl Pray 239

By contrast, regulators in many transition and developing economies, motivatedby widespread distrust of private companies and misunderstanding of market pro-cesses, often suppress market entry and competition. This leaves farmers heavilydependent on public research for new technology and on regulators to monitor andenforce input quality. Many agricultural experts recommend that governments ofpoor countries should control the private introduction of new input-embodied tech-nology based on government assessments of the performance of the technology, evenwhen externalities are not a factor. For example, one expert, raising the specter of “adisastrous effect on food supplies . . . from the extensive use of a poor-yielding vari-ety,” urged governments to protect farmers “against exploitation by those who mighttry to market an unsatisfactory variety simply to recoup breeding costs” (Kelly 1989,p. 43). One of the expert reviewers for this research project worried about “the moralhazard problem that arises with asymmetric information between consumers (farm-ers) and producers (private input suppliers),” noting that farmers in developing econo-mies “do not have access to the wide range of written and broadcast informationavailable to farmers in developed countries.”

Fears that farmers might lose from uncontrolled private introduction of new tech-nology continue to influence the design of input regulations. However, we have notbeen able to find any studies that investigate those fears empirically. During thisproject, we looked for instances of farmer loss from inappropriate technology.

Government controls on private technology impose two costs: the direct costs thatgovernments and companies incur in regulatory processes and forgone gains thatfarmers and consumers lose when regulators block or delay the sale of productiveinputs. Even a very efficient agency takes some time to evaluate input performanceand to decide whether to permit a new technology. Too often, regulators take a longtime and make many bad decisions, imposing significant costs in the form of forgonegains. In some cases, processes to test and assess new technologies are not much morethan a cover to protect public or private monopolies or oligopolies.

Whether governments are closed or open to new private companies and tech-nology, essentially all governments share some common practices in regulating in-puts. For example, most (if not all) governments regulate truth in labeling, listallowed pesticides based on risk and efficacy data, and supervise seed imports toblock seedborne pests and diseases (see table 1). The question about whether govern-ments allow private technology introduction is not about deregulating inputs—thatis out of the question—but rather about focusing input regulations on externalitiesand public health. Arguably, focusing in this way allows more effective protectionagainst externalities.

General economic and regulatory reforms in Bangladesh, India, Turkey, and Zim-babwe have reduced but not eliminated barriers to technology transfer for seeds andother inputs. Reforms in Turkey date from the early 1980s, in Bangladesh and India


from the late 1980s, and in Zimbabwe from the early 1990s. In all four countries,regulatory changes closely followed or coincided with more general economic reformsthat established market access to foreign exchange, removed nontariff barriers forbroad classes of imported goods, and improved the environment for domestic andforeign private investment. In some cases (for example, agricultural machinery inZimbabwe), general economic reforms have been sufficient by themselves to allowprivate technology transfer and competitive markets.

Table 1. Common Regulatory Practices with Respect to Efficacy and PerformanceInput Regulatory practices Comments

Seeds Three systems are common in the world: Voluntary registration1. Voluntary variety registration. Companies can sell facilitates private introduction

seeds that government has not tested and listed, of new cultivars. Voluntaryalthough governments may test and recommend variety registration also allowsvarieties. the sale of seed for unregistered

2. Compulsory variety registration for specified crops, land races, traditional varieties,with multicountry lists. This is the pattern in the E.U. and public varieties from worldFor specified crops, E.U. governments do not allow the trade.sale of seed except for varieties that have passedperformance tests. However, each governmentautomatically accepts varieties tested and listed byany other E.U. government.

3. Compulsory variety registration for specified crops,with single-country variety lists. Many developingeconomies maintain their own national lists of allowedvarieties based on in-country performance tests.

Pesticides Virtually all governments list allowed products Options to facilitate private(formulations with brand names) based on risk and technology transfer includeperformance; some accept risk data from other countries; accepting efficacy data fromand most require in-country performance tests. The other countries and waivingUnited States registers new biopesticides without efficacy data for biopesticidesperformance tests. and low-risk products.

Livestock Most countries list allowed products (formulations andmedicines brands) based on risk and efficacy; many countries

accept data on risk and efficacy from prior tests in othercountries.

Fertilizers Some countries list allowed products based on expert Allowing markets to determineand livestock decisions about optimum nutrient compositions; compositions facilitates privatefeeds other countries allow dealers to sell any composition technology transfer.

but insist on truth in labeling.

Agricultural Some countries list allowed makes and models based on Allowing markets to determinemachinery official performance tests; other countries allow sales of models favors private

new makes and models without any tests. technology transfer.


The Impact of Regulatory Reforms on Input Industries

Input companies compete at least in part by offering farmers a menu of interestingtechnologies and by continually adding new technologies to that menu. The costsand returns of identifying and introducing new technologies determine the rate atwhich a company will do so. The research effort required to introduce new technolo-gies varies from field testing imported technologies to in-country development of newcultivars, chemicals, and farm machinery.

There are three major cost factors. The first is the cost of available technology. Foragriculture as well as other activities, technology that is useful in one country comesfrom a worldwide process of public and private research. The supply of technologyavailable for spill-in (that is, adoption of the technology, with or without adaptation)into any one country depends on its distance from other countries (due to differencesin climate, tastes, wage rates, and other factors that affect the acceptability of importedtechnologies). A company may access technology through various channels, includ-ing imports of inputs or capital goods, licensing agreements and exchange of infor-mation among researchers. Public research within a country can also increase theflow of technology for private firms to develop for the market.

The second major cost factor is research efficiency. A company’s ability to takeadvantage of available technology to identify or develop new technology for a par-ticular market depends on several factors, including research efficiency. Researchefficiency depends in turn on the skills available in the company as well as the labormarket and the existence of supporting institutions, including public universities andresearch institutes and private seed and fertilizer associations. Countries with highresearch efficiencies tend to access and apply available spill-ins more quickly and alsodevelop more new technology for domestic as well as foreign markets. Multination-als operating in multiple countries locate research activities in countries with highresearch efficiencies.

The third major risk factor is regulatory barriers. From a company’s point of view,regulatory barriers impose significant costs, including direct expenditures to passregulatory hurdles and forgone income due to delayed sales.

There are two major return factors. The first is market size. Expected sales andprofits for an input with new technology depend on population, average income, andother factors that determine market size. In low-income countries, a large share ofagricultural gross domestic product (gdp) comes from food staples. As incomes rise,consumers want higher-value foods, so that markets for vegetable seeds, baby chicks,and livestock feed premixes tend to grow over time at rates that significantly exceedoverall gdp growth.

The second major return factor is appropriability. A company’s profits from sell-ing inputs embodying new technology depend also on the share of total social bene-fits the company is able to collect. One factor that influences appropriability is the


nature of the technology. With hybrids, for example, companies can protect owner-ship of technology by physical control of parent lines, as in India (see later discus-sion). Another factor that influences appropriability is the existence of legal channelsto register and enforce intellectual property rights (iprs), including patents and plantvariety protection (pvp) or plant breeders’ rights.

Seed Reforms and Seed Industries

For seeds, the regulatory reforms in Bangladesh, India, Turkey, and Zimbabwe repeatsome common themes but are far from identical (see table 2). Prior to the reforms underreview, both Bangladesh and Turkey had compulsory variety registration (that is, fora new variety, seed sales are not allowed until the government has approved thevariety). Bangladesh reduced barriers to new varieties by making variety registra-tion voluntary for all but five major crops (rice, wheat, jute, potatoes, and sugarcane).Turkey reduced barriers to private varieties by cutting required performance tests toone year, allowing companies to submit data from their own tests, and establishinga practice of readily approving almost all varieties proposed for registration. India andZimbabwe had voluntary variety registration for several decades. India continues thispolicy. Zimbabwe has imposed compulsory variety registration for 11 major cropssince 1993, about the same time that general economic reforms created the possibil-ity (threat) of market entry and real competition in seed markets.

Relaxation of seed import controls has played a major role in improving technol-ogy transfer in India and Turkey. Since 1988, India has allowed imports of commer-cial seed, parent seed, and germ plasm for vegetables, coarse grains, and oilseeds.However, for many other crops (for example, wheat, rice, and potatoes), the countrycontinues to block private imports—including germ plasm for breeding—based onnonphytosanitary factors, including performance. Turkey’s reforms since the early1980s have gone much further, allowing even commercial seed imports (albeit withsome difficulties) for essentially all crops. In Bangladesh, import controls are no obstacleto new varieties; seeds of new varieties for five crops cannot be imported, but the ob-stacle comes from variety controls rather than import controls. Zimbabwe blocks seedimports for major crops, which can slow the introduction of new varieties.

Improving the access of private companies to public lines has been an issue. Since1986, India has set procedures for seed companies to buy breeders’ seeds from pub-lic research institutes. By contrast, Zimbabwe continued agreements into the mid-1990s that gave one private company exclusive rights to lines from public breedingfor major crops.

In India, relaxation of investment controls has had an important impact on pri-vate investment in seeds. The 1969 Industrial Policy Act restricted Indian firms withmore than Rs 1 billion in total assets (about $130 million in 1969) to a list of coreindustries that did not include seeds; since 1979 the government has also restricted


firms with more than 40 percent foreign equity to core industries. In 1986, thegovernment made seeds and biotech core industries, and in 1991 general reformseased controls on foreign investment. In 1991, the government relaxed restrictionson technology transfer and foreign investment for the entire economy.

All members of the World Trade Organization have agreed to introduce iprs forvarieties and genes, but developing economies were given 10 years—until 2004—to comply. Whether to comply is not the issue because both public and private re-searchers look to make money from owning new technology. Zimbabwe’s pvp lawdates from 1973 and Turkey’s from 1994, but neither country is a member of themajor treaty organization that sets pvp standards, which suggests some difficulty withdesign or implementation. India’s ongoing attempts to draft a pvp law continue togenerate political controversy. New laws and regulations are also required to regu-late and protect iprs for genetically modified organisms.

Bangladesh. Prior to the 1990 seed reforms, private seed companies in Bangladeshfocused almost exclusively on vegetable seeds. Government lists of allowed cultivarsabsolutely blocked all varieties for some crops and severely limited farmer choice formany others. For example, listed varieties included only two open-pollinated variet-ies of maize and no hybrids, only two soybean varieties, and no sunflower hybrids.The lists protected lucrative markets for companies with listed varieties for popularproduce (for example, seedless watermelon and cauliflower). The government domi-nated seed production and trade for field crops.

Since 1990, nongovernmental organizations (ngos) and other companies haveentered seed trade and introduced a large number of new varieties for vegetables andsome field crops. New varieties allow off-season production and introduction of newvegetables, including sweet corn. New papaya varieties have improved quality andcut cost to consumers. Two large ngos, Grameen Krishi Foundation and BangladeshRural Advancement Committee, promoted hybrid maize through contract growers.In 1994/95, Bangladesh imported 65 tons of hybrid maize seed (enough for 3,300hectares). Companies have also tested hybrid sunflower, canola, and sorghum.

Import and distribution of vegetable seed continues to dominate the private seedindustry. Among field crops, jute and potato seed are financially important, but pri-vate seed production and trade for these crops are held back by compulsory varietyregistration. Private companies and ngos screen imported varieties and lines for veg-etables and a number of field crops for suitability to local conditions. In addition, in themid-1990s, a new joint venture began planning to breed vegetables in Bangladesh.

Despite large public research programs, the pace and quality of government vari-ety releases for the five crops with compulsory variety registration—rice, wheat, jute,potatoes, and sugarcane—leaves opportunities for additional gains from private in-troductions. However, the government has resisted introducing private varieties. Wellover half of the jute area is planted in Indian public varieties for which seeds are ille-


Tab

le 2

.Se

ed R

efor

ms

and

Impa

cts

on T

ech

nol

ogy

Tra

nsf

er a

nd

Seed

Indu

stri

esC

ount

ryR

efor

ms

Pos

t-re

form

reg

ulat

ions

Impa

ct o

n te

chno

logy

tra

nsfe

rIm

pact

on

seed

pro

duct

ion

and

trad

e

Ban

glad

esh

Indi

a

In 1

99

0, t

he

gove

rnm

ent e

nde

d co

mpu

lsor

yva

riet

y re

gist

rati

on fo

r al

l bu

t fiv

e cr

ops

(ric

e,w

hea

t, ju

te, p

otat

oes,

an

d su

garc

ane)

.

In 1

98

6, t

he

gove

rnm

ent i

ncl

ude

d se

ed a

nd

biot

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com

pan

ies

as c

ore

indu

stri

es, a

llow

ing

larg

e co

mpa

nie

s to

en

ter.

In 1

98

6, t

he

gove

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ent e

stab

lish

edpr

oced

ure

s fo

r pu

blic

res

earc

h a

gen

cies

to s

ell

bree

der

seed

to c

ompa

nie

s.

In 1

98

8, t

he

gove

rnm

ent e

ased

bar

rier

s to

seed

an

d ge

rm p

lasm

impo

rts

for

vege

tabl

es,

coar

se g

rain

s, a

nd

oils

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.

In 1

99

1, t

he

gove

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ent e

ased

bar

rier

s to

tech

nol

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purc

has

e an

d fo

reig

n in

vest

men

tfo

r th

e en

tire

eco

nom

y.

• N

o ba

rrie

rs to

new

vari

etie

s fo

r m

ost c

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• H

igh

bar

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s re

mai

n fo

rn

ongo

vern

men

t va

riet

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of r

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wh

eat,

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,su

garc

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an

d po

tato

es

• Lo

w to

no

barr

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ton

ew p

riva

te v

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ties

for

vege

tabl

es, c

oars

ece

real

s, a

nd

oils

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• Im

port

bar

rier

s fo

r se

eds

and

bree

din

g m

ater

ial

bloc

k in

trod

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of

new

pri

vate

var

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rot

her

cro

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• M

any

new

veg

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intr

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• H

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intr

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• H

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incr

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in r

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trod

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for

vege

tabl

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otto

n, c

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ain

an

d oi

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d h

ybri

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.g.,

mor

e th

an 1

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new

cot

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hyb

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intr

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in 1

99

6);

for

thes

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tec

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or

sets

wor

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• M

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com

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seed

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odes

t in

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trad

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fiel

dcr

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by n

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s•

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in v

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Zim

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In 1

98

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nde

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con

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s.

In 1

98

3, t

he

gove

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ut p

erfo

rman

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sts

to o

ne

year

, allo

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to d

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d es

tabl

ish

ed a

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to a

ccep

t mos

tpr

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e va

riet

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un

d 1

99

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the

gen

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eco

nom

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efor

ms

impr

oved

the

envi

ronm

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or p

riva

te c

ompa

nies

.

In 1

99

3 (p

olic

y re

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al),

the

gove

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mad

e va

riet

y re

gist

ratio

n a

nd

seed

cer

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nco

mpu

lsor

y fo

r 1

1 m

ajor

cro

ps, b

ut a

ccep

ted

mos

t var

ietie

s w

ithou

t tes

ts.

• Lo

w b

arri

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to n

ewpr

ivat

e va

riet

ies

for

all

crop

s

• Lo

w b

arri

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to n

ewva

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from

est

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lt fo

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all l

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• La

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incr

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in r

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ofin

trod

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of n

ewva

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for

exam

ple,

star

tin

g in

19

82

to1

98

7, s

un

flow

er h

ybri

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crea

sed

from

3 to

arou

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an

d so

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incr

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d fr

om2

to m

ore

than

40

• La

rge

incr

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in r

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ofin

trod

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of n

ewva

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ies

for

mai

ze; l

ess

impa

ct o

n o

ther

cro

ps

• Sig

nifi

can

t mar

ket e

ntr

y by

fore

ign

an

d do

mes

tic fi

rms;

nu

mbe

r of

pri

vate

see

d co

mpa

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ies

incr

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d fr

om fe

wer

than

5be

fore

the

refo

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to a

bou

t 80

by

19

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, in

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vera

lsu

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es, s

ome

join

t ven

ture

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d m

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ion

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• Pri

vate

com

pani

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ok o

ver

maj

or s

hare

s of

the

seed

mar

ket;

publ

ic s

ales

con

tinue

to d

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ate

som

e cr

ops

(e.g

., w

heat

)

• So

me

mar

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99

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gal because the government of Bangladesh has not registered the varieties. Similarly,farmers in border areas plant unregistered, short-duration Indian rice varieties. Theintroduction of Indian varieties could be more efficient through legal (private) seedtrade.

India. The Indian seed industry has developed within a large national market. Threenational seed associations have a total of more than 300 members, a large share ofwhich are seed producers, and many smaller seed companies are not members. Inthe public sector, agriculture is a state (versus federal) subject, so that state universi-ties and research organizations contribute to public breeding and state seed corpo-rations compete in national markets. Over the past several decades, Indian publicbreeders have developed and released thousands of varieties, although only a smallshare has been commercially significant.

The government has relaxed controls on foreign and domestic investment andtechnology contracts and Indian public research and foreign sources have improvedaccess to germ plasm. These developments have led large local firms and joint ven-tures already in India to move into seeds and some foreign seed companies to estab-lish new joint ventures or subsidiaries. Reforms also stimulated new entry by smalland medium local companies.

Reforms have significantly accelerated the introduction of technology. However,because companies introduce most of their new hybrids and varieties without vari-ety registration, it is not possible to give comprehensive figures on the number ofcultivars introduced over time. Industry sources report that more than 100 newcotton hybrids were introduced in 1996 alone. Most of these were private hybridsdeveloped from public parent lines, much as the U.S. hybrid maize industry beganwith public lines. Public lines—many from the International Crops Research Insti-tute for the Semi-Arid Tropics (icrisat)—are also important for sorghum and millethybrids. Maize and sunflower hybrids have gained from imported parent lines. Majorimprovements in quality have brought large changes in market share. In sunflowerhybrids, for example, the share for one firm dropped from over 80 percent in 1990 toless than 20 percent by 1996. Despite lack of pvp, at least one multinational has in-troduced its best maize germ plasm for low latitudes into the Indian market, relyingon physical control of hybrid parent lines to protect ownership. In 1997, severalcompanies reported plans to screen 100–800 new tomato hybrids in the coming year.When asked who has the largest market share in tomatoes, a seed executive answered,“It depends on who has the best new hybrid that year.”

In the mid-1990s, industry representatives estimated that since 1984–85 theprivate sector had been responsible for about 50–60 percent of the value of seed sales.Other recent estimates show private seed gaining significantly larger market sharesin some crops and states. For example, from 1985–89 to 1990–95, the area underprivate hybrids in Karnataka grew from 33 to 61 percent for maize and from 24 to


54 percent for sunflower hybrids. In Andra Pradesh, the area under private hybridsincreased from 10 to 33 percent for pearl millet and from 9 to 29 percent for sorghum(Pray and Ramaswami 1998). Most private seed company revenues come from hybrids,whereas public companies dominate markets for relatively low-value nonhybrids.However, private companies also produce and sell nonhybrid seed (for example, wheat),and public companies have been important in cotton and sorghum hybrids.

Turkey. Among the four countries studied here, market entry has been most dramaticin Turkey, where the number of private companies increased from fewer than 5 in1982 (before reforms) to more than 80 in the early 1990s. New entrants includesubsidiaries and joint ventures of major multinationals, but most are wholly locallyowned companies, often with (multiple) licensing contracts with foreign companies.

New companies have introduced new cultivars, screening material from breedingin other countries. Relaxation of variety controls has been a major factor in marketentry and has led to a large increase in the rate of introduction of cultivars. In sun-flowers, for example, the number of cultivars increased from 3 to about 30 during1982–87. Among field crops, maize and sunflower hybrids are by far the most im-portant seeds for private companies. However, as of 1993, private companies havealso introduced new varieties and produced several thousand tons of seed for sugarbeethybrids as well as nonhybrids of potatoes and soybeans, and about 10,000 tons ofnonhybrid wheat seed. Reforms have brought much faster technology introductionfor nonhybrids and hybrids. For example, the aggregate number of approved soybeanvarieties increased from 2 to more than 40 during 1982–87, and the governmentapproved an average of 5 new wheat varieties each year during 1984–94, comparedwith a cumulative total of 21 varieties approved through 1982. As of the mid-1990s,farmers planted private maize hybrids on about 170,000 hectares (a third of maizearea) and private sunflower hybrids on about 450,000 hectares (90 percent of sun-flower area), all from cultivars introduced after and because of the reforms. For manyother crops and vegetables, the shift to post-reform private cultivars has been at leastas dramatic as for maize.

Almost all private research is limited to screening imported lines. However, somecompanies with international connections (including license partners) work withforeign breeders to develop material for Turkey. For example, one company reportedsending materials from Turkey for breeding in the United States. Budgets and stafffor public agricultural research fell when Turkey liberalized trade in inputs. Althoughthe flow of introduction of technology has increased with liberalization, even moremay have been possible with continued strong public research.

Zimbabwe. Throughout the early 1990s, Seed Coop held a near monopoly in hybridmaize seed—Zimbabwe’s major seed market—and there was little competition forother seeds. Three major foreign companies—Pannar, Pioneer, and Cargill—began


hybrid maize research or seed sales before 1990; two other foreign companies—Pa-cific Seeds and DeKalb—entered after 1990 with local partners. Other local and for-eign companies have entered niches in the seed industry (especially production forexport).

In 1990, farmers had access to about a dozen maize hybrids, most of them rela-tively old ones from public breeding, and Seed Coop had an estimated 98 percent ofthe market. Reforms brought a large increase in private breeding, which got underway in at least four companies (primarily for hybrid maize but also including othercrops), compared with little or no private breeding through the mid-1980s. In 1997,farmers had access to almost 30 hybrids from four companies, and the share for SeedCoop (now Seed Company) had fallen to about 80 percent.

Since 1993, new regulations—compulsory variety registration and seed certifi-cation—have obstructed market entry for small local companies and blocked theintroduction of some specific technology. For example, a local ngo has been organiz-ing small farmers to produce sorghum seed. Sorghum seeds must be certified, whichinvolves laboratory testing. However, there are only two laboratories in the countryapproved for tests, one in the government, which is overcommitted and underfunded,and the other in Seed Company. Seed Company tests, processes, and packages theseed, after which it is too expensive for Zimbabwe’s small farmers and goes insteadfor export. In addition, some available technology continues to be explicitly barred.Compulsory variety registration for maize gives the government a legal instrumentto ban the sale of nonhybrid maize seed, forcing farmers to buy more expensive hybridseed. Hence, although suitable nonhybrid varieties are readily available, the seed isillegal.

The impact of seed reforms on private research. Regulatory and other reforms cut coststo introduce new cultivars. Other things equal, this leads to more private breeding.However, the impact of regulatory reforms on private research depends also on otherfactors that influence returns to research investments, such as available technology,research efficiency, market size and appropriability.

Multinationals, which account for a major share of breeding investments, carryout breeding activities in some countries, but sell their products in many other coun-tries as well. For most crops, the areas of applicability for new cultivars cross politicalboundaries, so that a purely national breeding strategy is inefficient. For example,Bangladesh is so close to India that companies could breed in either one for both, butIndia has a much larger market (with 900 million people) and higher research effi-ciency. Similarly, Turkey is agroclimatically close to Western Europe and the GreatPlains in the United States, regions with large markets and high research efficiency,so that companies breed elsewhere for Turkey. Because the African highlands—fromEthiopia through Zimbabwe—are distant from other maize markets, companies thatwant to compete must breed there. All private hybrid maize breeding for highland


Africa is done in Zimbabwe, which offers the highest research efficiency and amedium-size market (10 million people for whom maize is the major staple).

Ownership of hybrids does not depend on pvp legislation; companies can keepphysical control of parent lines, selling only the hybrid or crossed seed. Therefore, formany years companies have been able to realize high returns to research on suchcrops as maize for which hybrid seed is possible. Because hybrid maize accounts for amajor share of world seed sales and profits, companies invest heavily in maize re-search. In the four companies in this study, private maize breeding is important inIndia and Zimbabwe, whereas companies active in Turkey and Bangladesh limit in-country research to testing lines bred elsewhere. For other crops and vegetables, Indiais the only one of the four countries with significant private breeding. Since 1994,the one private breeding program in Turkey has taken advantage of the presence ofthe orobanche parasite to breed resistance into sunflower hybrids intended for inter-national markets.

India, with its large population, presents one of the largest potential seed marketsin the world, rivaling the E.U., U.S., and Chinese markets. Breeding efficiency is alsohigh, with high skills, strong scientific support, and low wages. Reforms in the late1980s relaxed restrictions on joint ventures, technical collaborations, entry by largefirms, and imports of commercial and research seeds. Analysis of data from a 1987icrisat survey and another 1995 icrisat survey (done as a part of this study) sug-gests that private research has responded positively to these changes. Between 1987and 1995, private research expenditures increased from US$1.2 million to US$4.7million, the number of doctoral scientists increased from 31 to 111, the number ofmaster’s of science degrees increased from 45 to 140, and the area of experimentalstations increased from 400 to 1,200 hectares.

Some of the total increase in Indian private research spending is in a handful oflarge local firms and foreign subsidiaries or joint ventures that could not enter beforethe reforms. Another share is in new, small companies that entered after the reformsbut could have entered at any time. Allowing imports of research seed was one fac-tor that made small research programs viable. The 1995 survey also found a largeincrease in research expenditures by incumbent firms, often linked to new foreigncollaborations, suggesting that policy change had a crucial role to play here as well.Although new spending by incumbent firms was more important than new entry inaccounting for the overall increase in private research, the effect of entry must notbe underestimated. It was probably the post-reform threat of entry by technologicallysuperior foreign companies that led the incumbent firms to seek collaborations.

Parastatal seed companies. Bangladesh, India, and Turkey began reforms with seedparastatals; Zimbabwe began with a private monopoly. In all four countries, the over-all pattern of reform—insofar as it has followed any pattern—has been to reduce bar-riers to entry for new companies and technology, with little or no attempt (at least


initially) to privatize or reduce the operations of seed parastatals. In crops where tech-nology introduction has been most rapid—primarily high-value seeds, including vege-tables and hybrids—private companies have been able to enter and expand marketshares against parastatals (which continue to operate) and Zimbabwe’s pre-reformmonopoly. Private companies also sell some nonhybrid seeds in all four countries.

Fertilizer Reforms and Industries

Bangladesh, Turkey, and Zimbabwe have ended fertilizer price controls and relaxedimport controls, reducing barriers to company and product entry (see table 3). Tur-key and Zimbabwe have maintained controls on fertilizer compositions allowed fordomestic trade, and Bangladesh has introduced them. These controls are based onthe argument that on their own farmers might not choose products that meet soildeficiencies (Zimbabwe) or might be fooled by cheaper products that have less im-pact on soil fertility, such as low-analysis products (Bangladesh). Nevertheless, gov-ernments have allowed private companies to introduce some new compositions.

All three countries produce much of their own fertilizer. Turkey’s industry includespublic and private companies; Bangladesh has several public plants and one newprivate urea plant; and Zimbabwe’s fertilizer production is all public. Fertilizer reformsleft production patterns intact—at least for the short term—but removed barriers toprivate trade starting in 1990 in Bangladesh, 1986 in Turkey (with more liberaliza-tion in 1994), and 1995 in Zimbabwe. Reforms allowing private imports broughtcompany entry, new products and lower margins.

In Bangladesh, expansion of private trade brought a shift from triple super phosphate(tsp, with 46 percent phosphoric acid) to single super phosphate (ssp, with 18 percentphosphoric acid and 12 percent sulfur) along with a large increase in gypsum (18 per-cent sulfur). The sulfur content of fertilizer sales grew steadily from 14,000 tons (1.5percent of all nutrients) in 1989/90, the last year before reform, to 89,000 tons (7 per-cent of nutrients) in 1995/96. This shift makes sense in light of the widespread sulfurdeficiency, and suggests that pre-reform products—with production and imports con-trolled by the government—did not address soil deficiencies. Aggregate fertilizer saleshave continued to grow after reform at least as fast as they did before reform, despitethree years of low rice prices (1992/93, 1993/94, and 1996/97).

Omnia, a major South African fertilizer company, entered Zimbabwe with newcompositions in 1995. Existing companies responded with their own new composi-tions. Omnia offers soil tests and made-to-order bulk blending for large customers.In Turkey, reforms in 1986 established oligopolistic competition, which brought moreproducts into the market, but left presubsidy prices far above border prices. Since1994, further import liberalization has brought real competition, so that domesticpresubsidy fertilizer prices fell to border-parity levels (see figure 1 for nitrogen fertil-izers; results for phosphorous are nearly identical).


Agricultural Machinery Reforms and Industries

In Bangladesh, Turkey, and Zimbabwe, pre-reform controls blocked new technologyand competing makes of agricultural machinery (see table 4). For example, the gov-ernment of Bangladesh maintained a list of specific models of diesel engines that weretested and approved (standardized) for minor irrigation and a similar list of approvedmodels of power tillers. Machinery not on the list could not be imported for agricul-ture. The government did away with these lists in early 1989, allowing traders toimport and sell any diesel engine for irrigation and also any power tiller. In Zimba-bwe, administrative distribution of scarce foreign exchange through an associationof established dealers allowed the association to control allowed makes and modelsand to limit competition as well. These controls crumbled around 1994 with gen-eral economic reforms that gave new dealers market access to foreign exchange andfreedom to import and sell new makes and models. In Turkey, in about 1985, thegovernment removed nontariff barriers and price controls on machinery trade.

Trade liberalization in Bangladesh and Zimbabwe brought market entry and a sig-nificant increase in the range of products and sales for engines and engine-poweredmachinery (such as tractors). In Bangladesh during 1988/89, dozens of traders beganimporting engines and power tillers from China. Compared with choices that the gov-ernment had previously enforced, traders and farmers shifted to cheaper makes and awider range of models, including especially smaller diesel engines. Competition alsolowered trading margins. During 1988/89, investment costs for common minor irri-gation installations (a diesel engine, 100-mm diameter pump, and well) and powertillers fell by about 50 percent. From the three years before reform to the three yearsafter (1986–88 to 1989–91), sales increased by 400 percent in diesel engines and bymore than 1,000 percent in power tillers. The public share of diesel engine imports and

Figure 1. Unsubsidized Nitrogen Prices in Turkey, 1990–97(constant lira)

Source: State Institute of Statistics, Turkey; International Fertilizer Developer Center, Muscle Shoals, Ala.

0

2 0 0 0

4 0 0 0

6 0 0 0

8 0 0 0

1 0 0 0 0

1 2 0 0 0

1 4 0 0 0

1 6 0 0 0

1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

R e a l A v W td D o m es ticP rice /kg N

R e a l B o rd e r P rice U re a /kg N


Tab

le 3

.Fe

rtili

zer

Ref

orm

s an

d Im

pact

s on

Tec

hn

olog

y an

d Fe

rtili

zer

Indu

stri

esP

ost-

refo

rmIm

pact

on

Impa

ct o

nC

ount

ryR

efor

ms

reg

ulat

ory

situ

atio

nte

chno

logy

tra

nsfe

r fe

rtili

zer

indu

stry

and

tra

de

Ban

glad

esh

In 1

98

8–9

0, t

he

gove

rnm

ent s

hift

ed m

ost

dom

esti

c fe

rtili

zer

sale

s fr

om fa

ctor

ies

and

port

s to

pri

vate

trad

ers

(mos

t wh

oles

ale

and

reta

il tr

ade

was

alr

eady

in p

riva

te h

ands

).

In 1

99

0, t

he

gove

rnm

ent a

llow

ed th

e im

port

of p

riva

te tr

iple

su

per

phos

phat

e an

d m

uri

ate

of p

otas

h w

ith

out p

erm

its.

Aro

un

d 1

99

1, t

he

gove

rnm

ent a

llow

edpr

ivat

e im

port

of a

ll ot

her

fert

ilize

rs w

ith

out

perm

its.

In 1

99

5 (p

olic

y re

vers

al),

the

gove

rnm

ent

assi

gned

mar

kets

to e

ach

fert

ilize

r de

aler

,ba

nn

ing

sale

s ou

tsid

e as

sign

ed m

arke

ts.

Aro

un

d 1

99

6 (p

olic

y re

vers

al),

the

gove

rn-

men

t beg

an to

lim

it (l

ist)

fert

ilize

r co

mpo

si-

tion

s al

low

ed fo

r sa

le.

• In

19

91

–95

, no

barr

iers

to n

ew c

ompo

siti

ons

and

low

bar

rier

s to

mar

ket

entr

y• S

tart

ing

in 1

99

5,

mod

erat

e to

maj

orba

rrie

rs to

new

pro

duct

san

d m

arke

t en

try

• T

rade

rs in

trod

uce

d n

ewpr

odu

cts

(e.g

., si

ngl

esu

per

phos

phat

e an

dm

icro

nu

trie

nts

) to

addr

ess

soil

defic

ien

cies

• In

the

earl

y 1

99

0s,

pri

vate

trad

ers

took

ove

r im

port

trad

e;th

ere

was

sig

nifi

can

t new

en

try

in fe

rtili

zer

wh

oles

ale

trad

e(w

hol

esal

e an

d re

tail

trad

eal

read

y co

mpe

titi

ve)


Tu

rkey

Zim

babw

e

In th

e ea

rly

19

80

s, th

e go

vern

men

t est

ab-

lish

ed a

wor

kabl

e fo

reig

n e

xch

ange

mar

ket.

In 1

98

6, t

he

gove

rnm

ent e

nde

d fe

rtili

zer

pric

eco

ntr

ols

and

allo

wed

fou

r pr

ivat

e co

mpa

nie

sto

impo

rt fe

rtili

zers

; su

bsid

ies

con

tin

ued

.

In 1

99

4, t

he

gove

rnm

ent o

pen

ed fe

rtili

zer

impo

rts

to a

ll la

rge

com

pan

ies;

su

bsid

ies

con

tinu

ed.

In 1

99

4, t

he

gove

rnm

ent e

stab

lish

ed a

wor

kabl

e fo

reig

n e

xch

ange

mar

ket.

In 1

99

3–9

5, t

he

gove

rnm

ent e

nde

d al

lfe

rtili

zer

pric

e co

ntr

ols.

• Low

bar

rier

s to

new

tech

nol

ogy

star

ted

in19

86•

Low

bar

rier

s to

mar

ket

entr

y st

arte

d in

19

94

• In

com

plet

e bu

t wor

kabl

ere

form

s st

arti

ng

arou

nd

19

95

• Mod

erat

e ba

rrie

rs to

intr

oduc

tion

of n

ewte

chno

logy

• Mod

erat

e to

maj

orba

rrie

rs to

com

petit

ion

• C

ompe

tin

g ol

igop

olis

tsin

trod

uce

d n

ewco

mpo

un

ds in

the

mid

-1

98

0s

• Si

gnifi

can

t in

crea

se in

nu

mbe

r of

com

posi

tion

sof

fere

d st

arti

ng

arou

nd

19

95

• St

arti

ng

in 1

98

6, t

her

e w

asso

me

incr

ease

in c

ompe

titi

on a

tal

l lev

els

of fe

rtili

zer

trad

e•

Star

tin

g in

19

94

, in

tern

al p

rice

s(b

efor

e su

bsid

ies)

fell

to b

orde

rpa

rity

• So

me

mar

ket e

ntr

y an

dsi

gnifi

can

t com

peti

tion

sta

rtin

gin

mid

-19

95

Tab

le 4

.A

gric

ult

ura

l Mac

hin

ery

Ref

orm

s an

d Im

pact

s on

Tec

hn

olog

y an

d M

ach

iner

y T

rade

Pos

t-re

form

Impa

ct o

nIm

pact

on

agr

icul

tura

lC

ount

ryG

ener

al a

nd r

egul

ator

y re

form

sre

gula

tory

sit

uati

onte

chno

logy

tra

nsfe

rm

achi

nery

indu

stry

and

tra

de

Ban

glad

esh

Tu

rkey

Zim

babw

e

In 1

98

5–8

7, t

he

gove

rnm

ent e

stab

lish

ed a

wor

kabl

efo

reig

n e

xch

ange

mar

ket a

nd

ende

d m

any

non

tari

ffba

rrie

rs (n

onta

riff

barr

iers

con

tinu

ed fo

r di

esel

en

gin

es fo

rir

riga

tion

an

d po

wer

tille

rs).

In 1

98

8, t

he

gove

rnm

ent e

limin

ated

impo

rt ta

xes

onst

anda

rdiz

ed (a

ppro

ved

for

agri

cult

ure

) die

sel e

ngi

nes

and

pow

er ti

llers

.

In 1

98

9, t

he

gove

rnm

ent e

nde

d st

anda

rdiz

atio

n,

allo

win

g im

port

wit

hou

t tax

es fo

r al

l 3–2

0-h

p di

esel

engi

nes

an

d al

l pow

er ti

llers

.

In th

e ea

rly

19

80

s, th

e go

vern

men

t est

ablis

hed

wor

kabl

e fo

reig

n e

xch

ange

mar

kets

.

In 1

98

4, t

he

gove

rnm

ent a

bolis

hed

pri

ce c

ontr

ols

onag

ricu

ltu

ral m

ach

iner

y.

In 1

985,

the

gove

rnm

ent a

bolis

hed

rule

s fo

r do

mes

tic c

on-

tent

for

agri

cultu

ral m

achi

nery

man

ufac

ture

d in

Tur

key.

Aro

un

d 1

98

5, t

he

gove

rnm

ent r

emov

ed n

onta

riff

barr

iers

on im

port

s of

trac

tors

, har

vest

ers,

an

d ot

her

mac

hin

ery.

Aro

un

d 1

99

4, t

he

gove

rnm

ent e

stab

lish

ed w

orka

ble

fore

ign

exc

han

ge m

arke

ts.

• N

o ba

rrie

rs to

new

mak

es a

nd

tech

nol

ogy

• N

o ba

rrie

rs to

new

bran

ds a

nd

tech

nol

ogie

sfo

r al

l mac

hin

ery

• N

o ba

rrie

rs to

new

bran

ds a

nd

tech

nol

ogie

sfo

r al

l mac

hin

ery

• La

rge

incr

ease

in v

arie

tyof

die

sel e

ngi

nes

avai

labl

e, in

clu

din

gw

ider

ran

ge o

f hor

se-

pow

er a

nd

qual

ity

• A

ccel

erat

ed in

trod

uct

ion

of n

ew te

chn

olog

y,in

clu

din

g pn

eum

atic

seed

dri

lls, d

rip

irri

gati

oneq

uip

men

t, a

nd

drye

rs

• In

trod

uct

ion

of m

ore

mak

es, i

ncl

udi

ng

chea

per

opti

ons

• In

trod

uct

ion

of n

ewte

chn

olog

y, in

clu

din

gbe

tter

see

ders

• Lar

ge in

crea

se in

nu

mbe

r of

mak

esof

die

sel e

ngin

es a

nd p

ower

tille

rsav

aila

ble,

bri

ngin

g co

mpe

titio

n an

dm

uch

low

er p

rice

s• A

vera

ge a

nn

ual

die

sel e

ngi

ne

sale

sin

crea

sed

over

40

0 p

erce

nt f

rom

thre

e ye

ars

befo

re r

efor

m to

thre

eye

ars

afte

r re

form

• Ave

rage

ann

ual p

ower

tille

r sa

les

incr

ease

d ab

out 1

0 tim

es fr

om th

ree

year

s bef

ore

to th

ree

year

s afte

r ref

orm

• C

onso

lidat

ion

in th

e do

mes

tic

trac

tor

indu

stry

, pos

sibl

y to

mee

tst

ron

ger

inte

rnat

ion

al c

ompe

titi

on•

Com

peti

tive

dom

esti

c pr

odu

cers

for

non

pow

ered

equ

ipm

ent

impr

oved

prod

uct

lin

es

• N

ew c

ompa

nie

s an

d m

ore

com

peti

-ti

on in

mac

hin

ery

impo

rt a

nd

trad

ebr

ough

t low

er p

rice

s fo

r tr

acto

rsan

d ot

her

impo

rted

equ

ipm

ent

• Sig

nific

ant i

ncre

ase

in tr

acto

r im

port

s(fr

om 1

300/

year

in 1

988–

93 to

3000

/yea

r in

199

4–96

)


retail sales fell from over 90 percent in 1986–88 to almost none in 1992–94. Liberal-ization brought a large increase in private imports and sales, although formal creditwas rarely available to farmers buying engines from private traders.

In Zimbabwe, the removal of trade barriers brought about a similar increase in therange of makes and models of tractors and other equipment. The number of tractorssold increased from an average of 1,300 per year in 1989–93 to 3,000 in 1994–96.Farmers also report an improvement in seeders and other equipment.

Pesticide Reforms and Industries

Consistent with standard international practice, Bangladesh, Turkey, and Zimbabwemaintain lists of allowed pesticide products, approving new entries based on infor-mation about pesticide risks and efficacy. All three countries accept all or most dataon risks from tests in other countries but ask for local efficacy tests. The governmentof Turkey allows companies to do their own efficacy tests, and accepts results fromone year of tests (at two sites). By contrast, Bangladesh and Zimbabwe require threeyears of tests; even then approvals are time-consuming and problematic. Turkey hassignificantly cut the cost and time required to introduce new pesticide technologies;Bangladesh and Zimbabwe have not. For competing brands of off-patent formula-tions that are already on the market, Zimbabwe requires three years of redundantefficacy tests, whereas Turkey approves competing products on the basis of chemicalanalysis alone. Zimbabwe’s excessively expensive and slow approval for competingproducts—notably approving only one product for one company through early1996—suggests that there is abuse of pesticide regulations to protect market sharesfor existing major companies. Across all three countries, procedures to approve newlow- and zero-risk products remain as time-consuming and strict as for conventionalmedium and high-risk pesticides.

In Turkey, changes in pesticide regulations brought more active ingredients, com-petition, and sales. The average annual number of new active ingredients approvedfor sale increased from 9 in 1980–84 to 20 in 1985–92. The country deregistered somedangerous active ingredients over the same period. From 1980 to 1992, the numberof active ingredients available in Turkey increased from 100 to 300, which compareswith 700 in the United States in the mid-1990s and 200 in a number of middle-incomecountries in Latin America and Southeast Asia around 1990 (Gisselquist and Benbrook1996). Turkey also has more products for each active ingredient. In the 1970s, thegovernment approved an average of three new products for each new active ingredi-ent; starting in 1980, this ratio jumped to nearly five, suggesting increased competi-tion (although individual firms may offer multiple products with the same activeingredient).

In 1989, Bangladesh removed import limits on approved pesticides, allowing morecompetition among companies with registered products. Zimbabwe established mar-


ket access to foreign exchange, which similarly removed limits on imports for ap-proved products and allowed more competition among established companies. How-ever, in both countries, registration of new and competing products remains a barriernot only to the introduction of technology but also to market entry.

Impact on Productivity and Incomes

The hypothesis we set out to test is that regulatory reforms have a significant netpositive impact on productivity and incomes. We establish a direct line of causationfrom reforms (for example, removal of compulsory variety registration), to changesin the rate of introduction of technology (for example, more private maize hybrids),to changes in input trade (for example, more sales of hybrid maize seeds), to changesin productivity and incomes (for example, higher maize yields and farm incomes).The crucial steps in this argument are the first two, in which regulatory reforms leadto the introduction of more new technology than would have occurred without reform,and this technology reaches farmers through inputs. If these points can be established,then we can be reasonably sure that the observed income gains from selected agricul-tural outputs would not have occurred in the absence of the regulatory reforms.

To quantify the impact on yields and incomes, we tailor the analysis to the avail-able data so that our methodology varies by input and country. We could not quan-tify benefits in all markets; however, there were significant positive impacts for selectedoutputs and minor negative impacts across the agricultural sector. Our method ofanalysis does not focus on sector output. Therefore, we avoid questions about therelative impact of regulatory reforms compared with other reforms, such as exten-sion and investments in rural roads.

The impact on overall welfare is an important consideration regarding regulatoryreforms in the agricultural sector. Because the introduction of new technology isequivalent to an essentially costless expansion of the production possibility frontier,reforms that allow more productive technology have a positive impact on overallwelfare. This is true regardless of whether other policies and conditions are ideal inthe agricultural sector or other sectors. Regulatory reforms caused a switch fromtechnologies essentially selected by governments to those selected by farmers; therewere no real resource costs involved in the switch. Although market distortions mayhave affected the size and distribution of welfare gains, the introduction and adop-tion of the new technology was sufficient to enhance welfare qualitatively. In thosecases for which we quantified the benefits, we did so using appropriate shadow prices—that is, border prices—so that measured benefits do not depend on uneconomic ordistorted prices.

From a more dynamic viewpoint, we also found that regulatory reform often cre-ated pressures that worked against subsidies and other economic distortions. For


example, the private companies that entered seed markets in Bangladesh, India, andTurkey undermined parastatal seed sales and subsidies. Post-reform private trade indiesel engines and power tillers in Bangladesh replaced parastatal sales and subsidiesand undermined donor and public support for enormously wasteful large-scale sur-face irrigation projects. An additional consideration is that better technology lowersproduction costs and thereby undermines the rationale for protection in the form ofsubsidies or trade barriers against imports. In these and other ways, regulatory re-forms have encouraged fewer distortions and better policies.

Case Studies

Case studies from Bangladesh, India, Turkey, and Zimbabwe demonstrate that thereforms brought about improvements in productivity and incomes.

Irrigation in Bangladesh. Between 1988, the last year before the reforms, and 1996,farmers bought and installed 394,000 (net) new shallow tubewells and low liftpumps, an average of 50,000 per year. This compares with average annual increasesof 20,000 in the four years before the reforms. Hence, the reforms brought an addi-tional 30,000 new small pumps each year. Estimating that each pump irrigates 4.0hectares, 30,000 additional pumps extend irrigation to an additional 120,000 hect-ares, or 1.2 percent of net cultivable area each year. In a regression of cereal produc-tion (tons) against irrigation (hectares) using 1972/73–1986/87 district data, thecoefficient for standard small pumps is 10.8 (Gisselquist 1991). With this figure,30,000 additional pumps each year boosts annual cereal production by 320,000tons, equivalent to 2 percent of 1988 cereal production or 1.6 percent of the muchhigher 1996 cereal production. This comes on top of other gains from irrigation ex-pansion that would have occurred without the reforms (that is, 20,000 new pumpseach year) and increased use of fertilizers.

Based on these estimates, cereal production in 1996 was about 13 percent (1.6percent compounded over eight years) above what it would have been without re-form.1 By 1996, higher post-reform irrigation expansion had increased net annualfarm income from cereals alone by more than $500 million. This is based on an esti-mated 2.6 million tons of additional rice at $250 per ton—a conservative figure be-cause the average import parity price exceeded $300 per ton during 1991–97—andsubtracting off-farm expenses estimated at 20 percent of the gross value of produc-tion. This estimate ignores additional farm income from other irrigated crops andfisheries.

Private hybrids in India. Our analysis covers cotton, maize, sunflowers, sorghum, andpearl millet. The empirical model for our partial productivity analysis is similar to themodels of total factor productivity analysis in the literature (Evenson and others


1998). The independent variables in our analysis include a measure of the spread ofhigh-yielding varieties expressed as a proportion of the crop area devoted to all vari-eties, a measure of the spread of private varieties, and other standard variables thataffect yields. With this model, the impact of private hybrids on yields is positive andstatistically significant in five of the nine crops and provinces analyzed and close tosignificant in a sixth case.

This evidence that private hybrids and research have had an impact on crop yieldsis particularly impressive because the region examined is in the semi-arid tropics,where private research is often not expected to have much impact. For maize andsunflowers, companies can draw on large private foreign research programs. InMaharashtra, private varieties and crop profitability have been the major factorsexplaining higher yields. In Karnataka, where the coefficient for private varieties isnot significantly different from zero, the coefficient for public high-yielding varietiesis large and could be picking up some of the impact of private varieties. Sunfloweryields in Karnataka have been virtually stagnant despite an expansion in the shareof area with private varieties. However, the sunflower area grew rapidly, which mayexplain the low increase in average yields because areas with lower marginal yieldswere brought into production. Maize yields increased only modestly in Karnataka.

Private maize hybrids in Turkey. We modeled maize yields in tons per hectare as a func-tion of private hybrids, fertilizer, irrigation, rainfall, and trend. Using the model, weprojected maize yields without private hybrids, then subtracted projected yields fromactual yields to estimate yield and income gains (see Gisselquist and Pray 1999). Thegap between actual and projected yields was greatest in 1990 at almost two tons perhectare. During 1990–92, the farm-level annual gross financial value of additionalproduction was about $130 million ($255 per hectare over 515,000 hectares). Tak-ing into account higher costs for hybrid seed and for harvesting and drying a largercrop and adjusting farm-level maize and fertilizer prices to international prices, theannual net economic benefit to the country from private maize hybrids in 1990–92was $74 million. This is equivalent to 23 percent of the gross value of maize produc-tion for the country.

Maize and tractors in Zimbabwe. We estimated the impact of reforms on maize yieldsin Zimbabwe from the share of area planted to post-reform hybrids and the averageyield of new and old hybrids in multiyear field trials. This approach circumvents prob-lems with year-to-year fluctuations in rainfall and other factors affecting nationalyields as well as inexact national production estimates, which can overwhelm theimpact of even very large changes in yield due to new technology (Feyerham andothers 1984).

In 1996, farmers planted 52 percent of maize area to post-1996 hybrids, for whichthe weighted average yield is 5.6 percent above the weighted average yield for pre-


1990 hybrids. Assuming that in the absence of reform all of the area would have beenplanted to the same pre-1990 hybrids, post-1990 hybrids are responsible for an almost3 percent increase in national average maize yield and production. This figure com-pares with estimated annual increases in yield potential due to breeding of roughly 0.67percent in industrial countries and well over 1 percent in selected developing econo-mies with relatively new private breeding programs.

The reforms have had a large impact on Zimbabwe’s stock of tractors. During1987–89, Zimbabwe had a total of 20,400 tractors, only 3 percent more than in1977–79 (World Resources Institute and others 1992:274). In the first three yearsafter market access to foreign exchange, 1994–96, aggregate tractor imports were9,200, equivalent to 45 percent of total tractors in Zimbabwe at the end of the 1980s.Assuming that half of the new tractors replaced older ones going out of service, farm-ers had more than 20 percent more tractors in 1996 due to the reforms. If these trendscontinue for another three to six years, the impact of more tractors may be evidentin national and survey data on planted area, fertilizer use, timeliness of planting, andfield-to-market transport costs. However, considering large fluctuations in agricul-tural activities due to erratic rainfall and other factors, we did not analyze the impacton planted area or aggregate production through 1996.

Costs of Reform

Disregarding the minor administrative costs of the redesign of regulations, we con-sidered the costs of the regulatory reforms in three main areas: nonperforming tech-nology, fraud, and externalities. We also looked at fears that local input industriesmight lose sales and that increased private technology flows might undermine fund-ing for public research.

Nonperforming technology. For inputs and countries where changes in regulationsbrought a large increase in the introduction of technology, farmers shifted out of oldertechnologies. This shift tended to be one-way and progressive, with the number offarmers adopting new technologies increasing over time. The pattern of these shiftssuggests that farmers were not negatively surprised about the performance of the newtechnologies and that farmer adoption of inferior technology from the limited list ofpre-reform options became less likely with reform.

This finding agrees with what could be predicted from the literature on marketswith incomplete information. The theoretical analyses indicate, for example, thatmarkets are more susceptible to misleading claims when the products being sold have“credence” characteristics, that is, qualities that are not apparent in normal usage(Lynch and others 1986). However, these risks are limited with frequently purchasedexperience goods, that is, goods whose quality is clear when they are used (Posner1979). Other studies show that, under many conditions, sellers develop reputations


that improve market information and reliability for all parties (Allen 1984; Klein andLeffler 1981; Shapiro 1982).

Markets for seeds and other agricultural inputs (for example, livestock feed) clearlyfit the model of a frequently purchased experience good, the quality of which can becheaply ascertained. Given the high fixed costs of market entry (breeding, research,and building dealer networks), sellers must depend on reputations to generate repeatbusiness. Farmers are quite capable of judging the attributes of a new variety fromseeing it in others’ fields (including company demonstrations). If necessary, farmerscan test a variety in a small area before planting it on a large scale. Generally, infor-mation that farmers obtain this way is a more accurate predictor of their own futureresults than are data from a small number of government test plots. Of course, gov-ernment testing may provide additional useful information and may justify govern-ment expenditure to develop and disseminate information. However, it does not justifygovernment controls that force farmers to forgo new varieties while government offi-cials collect data from multiyear trials.

Fraud. Some experts argue that in poor countries—where inadequate legal systemsmean that farmers cannot sue—reforms that lead to market entry and more privateinput trade increase the risk of fraud. This argument overlooks the fact that increasedcompetition gives farmers more opportunities to enforce quality through marketchoice. For example, without competition, seed parastatals are not afraid to lose salesif germination is below what is claimed; market entry changes this situation. In India,for example, it is generally recognized that seed quality improved during the 1990sas private companies with proprietary cultivars expanded their share of the marketagainst public cultivars that were often produced and sold as commodities with littleattention to brand name.

The only alleged case of large-scale fraud that we came across in the country studiesoccurred in Bangladesh. Government experts asserted that fertilizer traders cheatedfarmers by selling ssp in place of tsp, and that farmers did not fully appreciate differ-ences in phosphoric acid content (18 percent versus 46 percent). Largely on the basisof this charge, in the mid-1990s, the government of Bangladesh introduced newregulations that imposed prior government approval on all fertilizer compositionsallowed for trade. The government could have addressed the concern by enforcingtruth in labeling for packaged fertilizers. (An alternative interpretation of the increasein ssp sales is that farmers were not fooled but rather appreciated the sulfur contentof ssp and that government officials have been confused about the relative impactsof tsp and ssp on yields.)

Higher externalities. Just about anything that leads to agricultural growth—ruralroads, regulatory reforms, or public research—will also lead to higher levels of com-mercial input use. Therefore, growth challenges the government to adjust regula-


tions to focus more effectively on externalities. Well-designed regulatory reforms notonly allow more technology and input trade but also focus and strengthen controlsthat limit externalities. This has happened to some extent in Turkey, and less so inthe other three countries. Overall, there has arguably been some increase in pesti-cide externalities due to insufficient efforts to shift farmers to safer pesticides and tocontrol the use of more dangerous products.

In India, Bangladesh, and Turkey, seed reforms led to some increases in seed im-ports and hence possible phytosanitary problems. However, the share of plantedseed that is imported is still far below common oecd practice in all four countries.Seed smuggling into Turkey fell with reforms, improving phytosanitary protection.However, none of the countries has yet implemented a consistent, science-basedphytosanitary system. Overall, evidence suggests little or no shift either way in termsof phytosanitary threats from seed imports. However, governments could have donemore to reduce such threats with more focused import controls.

Weaker local input industries. In general, reforms lead to increased company entry andtechnology, not only expanding input markets, but also taking market shares awayfrom parastatals and some existing private companies. This can present a threat topeople with a stake in the pre-reform situation, including government breeders, inputparastatals, and existing private companies that are protected by regulations (forexample, Seed Coop in Zimbabwe or the sole dealer for Sai Feng power tillers inBangladesh before the reforms).

For most countries and inputs, we found that reform led to overall growth in theproduction and trade of inputs, with more links to international industries and tech-nology. In some cases, new companies and technology helped national input indus-tries to compete in world markets. For example, immediately after the reforms, Turkeyimported hybrid maize and sunflower seeds; within several years, the country becamea net exporter. By contrast, Turkey’s fertilizer exports fell because the reforms reducedhidden export subsidies. However, it is important to keep concerns about impacts oninput industries in context. Restraints on trade to protect an upstream activity, suchas input production, can impose large losses on downstream activities, includingagricultural production and processing industries.

Effect on public research. The impact of promarket reforms on public research budgetsis another common concern. Before the reforms, regulations blocked private technol-ogy introduction, and the government dominated research. Reforms that allow theintroduction of private technology stimulate private research (including screeningimported technology for local applicability). For oecd countries with relatively muchhigher levels of private as well as public agricultural research, estimates of returns topublic research are consistently high. This suggests that public research remains a goodinvestment, even after reforms stimulate the introduction of more private technology.


Regulatory reforms present an opportunity to revitalize public-sector research.Arguably, a significant share of public research in many developing and transitioneconomies currently has negative returns. In some cases, government scientists wastetheir time testing and regulating new private technologies or developing inferior tech-nologies that farmers use only because they cannot choose more productive technolo-gies that regulators do not allow. Reforms that bring more private companies andtechnology allow public research to shift effort into areas not covered by private com-panies. Such reforms create opportunities for public–private collaboration, create acompetitive environment that makes it easier for public research managers to assessand manage staff and research programs, and increase returns to complementarypublic research (for example, greater use of high-yielding varieties increases returnsto soil science research). Thus, the kinds of reforms discussed could lead to redirect-ing and increasing public research budgets. What actually happens depends directlyon decisions within government, not on trade in private inputs.

Recommendations

These findings suggest some specific steps that developing economy governments andsupporting institutions can take to more effectively support agricultural growth. First,governments should reduce regulatory barriers to the introduction of private tech-nology. Governments should focus input regulations on fraud and externalities andallow markets to decide questions about performance. Table 5 summarizes some ofthe most common regulatory obstacles and suggested reforms for major inputs.

Reforms are especially important for products with small markets. Where thepotential sales and profits to a private company are small, the high fixed costs incurredin overcoming regulatory hurdles deter the introduction of technology. Most Afri-can economies are small markets where high barriers to entry for local as well asforeign companies and varieties have essentially blocked development of private seedindustries. These barriers have left farmers with short lists of improved varieties fromnational research institutes and poor access to seeds, often from monopoly parastatals.Even in large economies, low-risk biopesticides have only small niche markets becausethey are targeted to specific pests and crops. Forcing them through the same tests ashigh-risk poisons amounts to a bias in favor of high-risk products. The United Statesand some other oecd countries have taken steps to adjust regulatory processes to favorbiopesticides. Governments in developing economies could consider similar changes.

Second, when donors design a project to support government agricultural researchor extension in a developing economy, they should assess whether regulations presentan obstacle to the introduction of private technology. If so, the donors should pressgovernments to allow private technology. It makes little sense to pay for public re-search if government blocks the introduction of commercially available technology.


Table 5. Reforms toward Optimal Regulations: Focusing on Externalities and FraudInput Common excessive or inadequate regulations Suggested reforms

Seeds

Pesticides

Fertilizers

Livestockfeeds

Agriculturalmachinery

a. Case-by-case import permits based ongovernment estimates of seed productionand requirements as well as phytosanitaryconcerns.

b. Case-by-case export permits based ongovernment estimates of seed productionand requirements.

c. Compulsory variety registration: seed salenot allowed until government has approvedthe variety, often after several years of tests.

d. Compulsory seed certification: seed salenot allowed unless government officialshave visited and approved fields andtested seed.

e. Government permission for newcompanies to enter the market is basedon unreasonably strict objective criteriaor arbitrary decision.

a. Efficacy tests required for all newformulations, including low- and zero-risk biopesticides.

b. All pesticides—including low- and zero-risk products—subject to similar controlson sales, storage, transport, and use.

c. Residue testing of food products in trade,but often focused on products for exportto oecd countries with high standards.

Government approval required for newcomponents and compositions.

Government approval required for newnutrients and compositions.

Government tests and approvals requiredfor new makes and models.

a. Focus import controls on realisticphytosanitary concerns.

b. Do away with export permits.c. Make variety registration voluntary; test

only as a service to farmers and companies.d. Make certification voluntary; do away

with minimum standards or make themvoluntary; enforce truth in labeling.

e. Set low objective requirements for newcompanies, just as in other sectors (e.g.,tax registration).

a. Accept efficacy tests from comparablecountries; reduce or eliminate efficacytests for low- and zero-risk biopesticides.

b. Adjust trade and use controls accordingto risk.

c. Increase residue testing for food productsintended for domestic markets.

Allow companies to sell any combination ofnutrients, except for limits on heavy metalsand other harmful items; enforce truth inlabeling.

Allow companies to introduce newcomponents and compositions, except forlimits on classes of components thatthreaten health externalities, such asnonvegetable proteins, hormones, andantibiotics; enforce truth in labeling; andincrease testing for banned components infeeds and residues in livestock products.

Allow companies to introduce newmachinery; test only as a service tocompanies and farmers.


Third, cgiar should challenge the governments of developing economies to allowall resident companies and ngos unrestricted access to cgiar germ plasm and to mul-tiply seed for sale without first having to gain approval from a government regulatorycommittee. Donors fund the cgiar system to develop technology for farmers in devel-oping economies. Unfortunately, much of that technology is illegal in many of the coun-tries (where governments enforce compulsory variety registration and have at the sametime registered only a small fraction of cgiar lines). Returns to investments in cgiar

research could be much higher if technology could reach more farmers faster.

Notes

David Gisselquist is an independent consultant. John Nash is advisor for commodities and trade in theAgriculture and Rural Development Department at the World Bank. Carl Pray is a professor in theAgricultural Economics Department at Rutgers University. David Gisselquist can be reached via e-mailat [email protected]; John Nash at [email protected]; and Carl Pray at [email protected].

1. Estimates of changes in cereal production based on changes in minor irrigation agree withMitchell’s (1997) estimate based on demand-side evidence that rice production grew 3.2 percent peryear over 1991–97. During 1991–97, the population grew at 1.6 percent per year, income per capitaincreased 3 percent per year, and rice prices fell. Imports were minimal in 1991 and 1997. Similarly,field surveys by the Bangladesh Institute for Development Studies (Hossain and others 1996) for 1987and 1994 show minor irrigation expanding from 20 to 37 percent of net cultivable area, average riceyields rising from 2.44 to 3.22 tons per hectare, and annual rice area increasing from 122 to 139 per-cent of net cultivated area (on average, 1.39 rice crops were planted each year on the same land in1994). Official data show rice production growing less than 0.4 percent per year over FY91–97; how-ever, the basis for the official data is weak.

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